What is drop shipping?
Drop shipping can be a very simple and effective way to get involved in ecommerce. Many established online merchants are now turning to dropshipping companies as a means of minimizing stock on hand, decreasing overall shipping costs and cutting down on delivery times to customers.
Drop shipping allows web site owners to send single/low quantity unit orders gathered on their web sites to manufacturers, or wholesale warehouse companies, who in turn ship the items directly to the customers of the web site owner; i.e. you do the promotion and collect the payment, and the dropship company looks after order fulfillment.
Other advantages of the drop shipping model
Challenges and dangers of dropshipping
Many wholesale companies will have an interest in teaming up with you in a dropshipping arrangement as it's an easy way for them to generate extra revenue, but there's a number of points to consider and things to look out for:
Don't accept that the first drop shipper you come across will give you the best deal - shop around for the most suitable wholesaler company.
Drop ship fees and charges
Some dropshippers will have a handling fee over and above freight costs - it's important to know all the costs involved so you can calculate your profit margins accurately. Any wholesale company that wants to charge you a regular "participation" fee should be avoided - the only time you should have to pay a dropship company *anything* is in connection with a specific order.
Is the drop shipper using "Clumsy Cal's Discount Express" or Fedex? Will the company ship international? You'll want to ensure their shipping methods will see your clients get their products in one piece.
Also bear in mind that you may need a specific type of shopping cart in order to handle drop shipping. Many shopping carts only allow for one "ship from" zip code in the configuration for freight calculations. If you are dealing with a number of drop-shippers you may have dozens of point-of-origin zip codes - and this can be a real headache if freight is based on distance.
Will the drop shipping company automatically debit your credit card on each order you submit, or can you get monthly payment terms? When you are starting out with a company, they are unlikely to offer credit, but it's good to check if this will be possible once you've established credibility.
Support, returns, refunds
The last thing you'll want is to be caught up in a nasty situation where you have a number of returns - and have to foot the bill. Ask the dropshipping company about their returns policy, what kind of support they'll offer you for their products and about any guarantees associated with their products - and get it in writing.
Chargebacks can also be an ominous problem; particularly when dealing with high cost, low margin goods as you'll have little or no comeback with your supplier in many instances.
Chargebacks - a fatal blow for drop shipping
A chargeback is where a consumer has filed a complaint with their bank against a company regarding a transaction for any number of reasons such as a claim the goods were not received, unauthorized transactions or any of a myriad of grievances. It's important to understand that the chargeback process is heavily weighted in the favor of the consumer. A chargeback is a great consumer protection mechanism, however there are unscrupulous individuals out there who abuse it.
If a chargeback is instigated, it can be a lengthy and frustrating process to challenge it. If your challenge should be rejected, you'll be stuck with the full amount of the sale being debited from your merchant account plus chargeback fees that are usually around the $30 amount. Additionally, if your level of chargebacks is high enough (1% of transactions or 1% of total transaction value), you may be penalized in the form of higher transaction fees and ultimately, it will put your merchant account at risk. An ounce of prevention is worth a pound of cure and as one of the most common reasons for a chargeback is a claim of an unauthorized transaction; effective fraud screening is a must. Learn more about fraud screening.
How long have the drop shippers been around for? Do they respond to your requests for information rapidly and professionally? Young dropship companies and wholesalers have the habit of going belly up quickly, or growing too rapidly and as a consequence basic good customer service suffers.
How do I get into drop shipping?
It's fairly simple:
How do I find drop shipping friendly suppliers and companies?
There's a couple of approaches you can take to find suitable dropship wholesalers.
You can contact wholesale suppliers directly who produce/stock goods of interest and inquire about a drop shipping partnership; although you should be a little cautious, especially if the company hasn't been involved in these kinds of partnerships before.
The other way to go is to hit your favorite search engine and search on the terms:
"drop shipping" + product of interest
Ensure you encapsulate in quotes where indicated above to ensure the results you get are the most relevant.
Dropship resources directory
Whether you're based in the USA or outside of it, give OneSource a try. They give you access to lists of over 1,000,000 products from over 234 different categories in their directory. OneSource lists the *real* wholesale drop shippers, not retail companies or middlemen with links to wholesalers - it's definitely worthwhile checking out
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